Using Funding to Manage the Impact of Litigation Spending on Law Department Budgets

October 20, 2016

Using Funding to Manage the Impact of Litigation Spending on Law Department Budgets

Initiating litigation to pursue a meritorious claim can be a critical and strategic move for companies who have been wronged by a third party. All too often, however, the cost of defending against suits leaves companies without the resources to initiate litigation. In-house counsel hamstrung by this situation have a powerful new tool to consider in litigation finance. Where they have for years been forced to walk away from cost-prohibitive meritorious claims, they can now pursue them with funding provided by a commercial litigation finance firm – and realize revenue-enhancing benefits from the activity.

Litigation funding provides in-house counsel with the ability to pursue claims while overcoming the objections they typically hear from their financial team. “From the corporate perspective, initiating litigation can result in a reduction in EBITDA and be seen as a drag on earnings,” said Matt Harrison, a Bentham IMF investment manager based in San Francisco. The involvement of a funder changes the scenario by limiting the company’s outlay of resources. “It helps companies pursue offensive-side disputes without eating away at the legal department’s budget,” said Allison Chock, a Bentham IMF investment manager based in Los Angeles.

From an accounting perspective, funding allows much of the costs of litigation to disappear from the expense line on a profit-and-loss statement. Those costs can be covered by a litigation funder like Bentham. Even for larger companies, which sometimes set money aside for the most critical, “bet-the-company” plaintiff-side cases, litigation funding expands the options in several ways:  a company may use more seasoned (and thus more effective) counsel, it can pursue a more aggressive strategy, it even may choose to expand its offensive-side litigation portfolio. “It can open up another set of cases that they ought to pursue, but perhaps have not, solely due to budgetary constraints,” Harrison stated.

Additionally, a funder can help mitigate concerns about whether a claim will be successful. Although funders cannot guarantee any particular claim will be fruitful, funders closely analyze cases and invest in only those that they believe will most likely provide a strong return on their investment. An objective litigation funder’s extra level of scrutiny can give a company greater confidence that expanding its litigation efforts are worth the risk.

Bringing meritorious litigation can allow a company to recover assets and send a strong message to the marketplace that it is ready and willing to protect its rights. To learn more about how Bentham’s litigation funding can help your company pursue a plaintiff-side strategy, contact us for a consultation.